Richard Inder: Tenon’s focus firmly on US

COSMETIC SURGERY

Tenon's proposed adoption of the greenback for its accounts looks like a step towards outright sale of the business.

In practical terms it means the accounts will be stated in US dollars and, strangely, shareholders could receive dividend payments in the same currency if they resume later in the year.

Tenon chief executive John Dell makes a spirited defence of the move. The $165 million sale of the structural timber mills at Kawerau, Rainbow Mountain and Mt Maunganui, has left Tenon focused on US markets.

From its mill at Taupo it produces products for its Empire and AWM businesses, which notably are the largest suppliers to home improvement giants Lowe's and Home Depot.

Tenon also has a smaller business supplying wood to Europe, including its furniture joint venture Zenia House.

Dell said: "It is important for our shareholders to understand that they now own a United States dollar-driven business ... We believe [the switch] will provide greater transparency as to the company's underlying performance of Tenon's business."

The sharp fall in the greenback over the past two years has been accompanied by a sharp fall in New Zealand dollar denominated returns.

Strip out currency effects and Tenon's performance would look more healthy.

However, this really is of little practical help to Tenon's shareholders. The move amounts to shifting the currency risk from Tenon's management.

Its majority shareholder, Rubicon, and many of its institutional shareholders quote their returns in New Zealand dollars. Meanwhile, the legion of Tenon minority shareholders, many of whom retain shares bought when Tenon was the old Fletcher Challenge Group, are arguably much less able to manage foreign currency risk than Tenon management.

For the very reasons Dell sets out, the business would be best owned by a company in the United States. A switch to US currency makes it easier for Rubicon to talk up Tenon's prospects. Rubicon has so far suggested it intends to expand the business, which was valued by accountancy firm Grant Samuel at $246 million to $295 million last year. But its record so far has been for trading rather than increasing assets.

IMPULSIVE MOVE

Political attacks yesterday on Transpower's convoluted infrastructure lease deal look a little impulsive. Transpower seemingly has leased its assets to a US company and then leased them back through a Cayman Islands tax intermediary, booking $35 million on the deal.

Certainly, the deal poses some important questions, such as the term of the leases, and what happens if the foreign party runs into financial difficulties and the protections offered to New Zealand power users.

But National Party finance spokesman John Key's using the deal to make a link between Transpower's practices and those of the failed US energy giant Enron, before answering these questions, looks a little rash. Furthermore, state-owned enterprises are set up as commercial entities, designed to maximise returns to their shareholder, the Government.

This will inevitably put them in politically ambiguous situations - such as Transpower's apparent exploitation of foreign tax loopholes.

Already the Government has muddied this mandate by requiring SOEs to seek Government approval if they want to make big investments overseas.

Further tinkering will only increase the risks faced by the taxpayer and should be resisted.

PEACE BREAK

Peace appears to have broken out between Vector and its owner, the Auckland Energy Consumer Trust, and it is all for the better.

We are now told the long-promised sale of a partial stake in the powerlines company and a sharemarket listing to fund the $880 million buy of a controlling stake in gas group NGC is now on track.

"It is expected that the company will list in late August/early September and will release a prospectus in June," Vector told the stock exchange.

The manoeuvrings behind the statement remain opaque. All that is clear is the trustees met this week. And that after that meeting they agreed to float and to share financial advisers in the forthcoming float.

This last point should not be dismissed as at the very least it indicates that the trust and the company believe their interests are aligned. Beyond that things get murky. Until the meeting some members of the trust were considering alternatives to a share market float.

One proposal, from Australia's Duet - a listed company managed by Macquarie Bank and AMP Capital - was for the trust to retain 100 per cent ownership of the Auckland electricity network but reduce its ownership of other assets.

But others were also on the table.

Just why this and other proposals gained traction and were then abandoned remain unclear. Indeed, the publicly elected trust has so far even refused to disclose how the vote on the float fell.

It would be easy to dismiss all of this as past history and enjoy the moment. The float, set to raise between $550 million and $650 million, will be the biggest this year.

The quotation of the new Vector will give a big boost to the depth and breadth and profile of the New Zealand Exchange. Also it can only increase the pressure on management to perform.

But investors are still going to be wary as it will still be dominated by a politically driven trust. If the latest spat and the so-far rocky path to Vector's flotation can teach us anything it is not to trust the trust.